Assessment Orders Invalid Without Substantiation from AIR Data Alone

Bona Sera Hospitality Pvt. Ltd Vs DCIT (ITAT Mumbai)

Facts:

1. The appellant appealed against the CIT(A)/NFAC order dated 24.03.2023 for AY. 2011-12.
2. The dispute involves the partial allowance of the appellant’s appeal by CIT(A), concerning additions of Rs.1,91,956/- & Rs.4,74,558/-, and the non-deletion of Rs.3,67,773/ (unreconciled amount).

Observations:

1. The appellant, a software services provider to the hospitality industry, filed a return for AY. 2011-12, showing a loss of Rs.2,83,48,393/-.
2. During assessment, the AO directed reconciliation of income based on AIR information (mismatch in 26AS).
3. The AO added Rs.10,34,287/- due to unreconciled amounts despite the appellant’s reconciliation attempts.
4. CIT(A) directed AO to verify specific entries, resulting in relief for Rs.6,66,514/-, confirming the balance addition of Rs.3,67,773/-.

Conclusion:

1. The AR highlighted that reconciling approximately 1200 items was challenging, and 1100 items were successfully reconciled.
2. The appellant argued that payments from four parties were accounted for in subsequent years due to different invoicing/payment times.
3. The Tribunal noted the significant revenue declared by the appellant in its Profit & Loss Account, exceeding the 26AS information.
4. Relying on legal precedents, the Tribunal held that assessments solely based on AIR data without complete party details aren’t legally sustainable.
5. Considering the negligible percentage (0.3376%) of unreconciled items against the appellant’s declared revenue, the Tribunal directed deletion of Rs.3,67,773/-.

Conclusion:

The appellant’s appeal was allowed, and the addition of Rs.3,67,773/- was deleted based on the observations regarding the reconciliation of income and legal precedents.

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